3i Group plc (III) Earnings Call Transcript & Summary

Good morning, and welcome to 3i's Capital Market Seminar for Action's 2022 Results. My name is Simon Borrows. I'm the CEO of 3i and the Chairman of Action. Also on the line is James Hatchley, CFO of 3i; as well as Hajir Hajji, CEO of Action; and Joost Sliepenbeek, CFO of Action. We plan to take you through the presentation, which has been put on our website this morning. Action's exceptional track record has continued in 2022 with very strong growth in sales, EBITDA and cash flow. The performance in 2022 is, once again, a testament to Action's brand and its customer-centric approach with very low prices proving increasingly attractive at a time of very high shop price inflation. Action has coped remarkably well over the last few disrupted years and this slide shows how the Group has been able to demonstrate resilience and good growth for all phases of the economic cycle. We don't believe there are any retailers that are close comparators of Action and very few of them move as seamlessly into new geographic markets as Action does. We do track a group of discount format of concepts as part of our valuation reviews, and this slide compares Action's performance to that group over the last 5 years. As you can see, Action's performance over this period compares very favorably. And this performance is all the more remarkable given action was not deemed a central retailer during COVID in a number of countries, whereas most of these peers were open throughout the pandemic. On Slide 5, you can see the compounding benefits which Action's growth brings to 3i, and in recent years, the power of that compounding has really started to come through. Okay. Let me now hand across to the Action team. You heard from Hajir for the first time last year and here it has just been a regular as part of this capital market seminar. So Hajir, over to you to tell us about your first full year as CEO of Action.

Thank you for your introduction, Simon. I would like to provide you with an update of our 2022 performance followed by an update on our strategy. Our performance in 2022 was strong. After 2 years of COVID restrictions, 2022 was marked by the war in Ukraine and the impact of high inflation. Despite these challenging circumstances, we were able to grow further. We reported an 80.1% like-for-like sales growth and GBP $8.9 billion in total sales, an increase of 29.6% versus last year. We delivered GBP 1.205 million operating EBITDA, an increase of 45.5% compared to last year. And next to this, we added 280 new stores. Several aspects drove the strong performance. First of all, customers were impacted by inflation and uncertainty about the future, which resulted in a high demand discount. Secondly, we were able to provide a relevant and strong offer due to the flexibility of our formula allowing us to adopt our product rate. Thirdly, we continue to expand our store base with a rapid number of store openings. The fourth driver was the tight cost controls we maintain to counter the impact of inflation in different areas of our business. The fifth driver is improvements in our supply chain, which helped our good product availability stores. And finally, I would like to highlight the impressive performance of our employees. People are at the heart of our company and an important part of our success. They provide customer service and create the atmosphere in our stores. A combination of a high demand for discount and a strong offering in our stores continue to attract new and existing customers across all income and education groups. We observed an increasing demand for essential items and had a record number of customer transactions. We have seen a like-for-like increase in the number of transactions by 22.2% as a result of increased customer footfall. This trend is continuing in the first weeks of this year as customers increasingly understand they can get great quality at low price as well as the daily essentials they need. And Joost will explain more on our current trading during his presentation. Performance is also reflected in the growth we seen across all product categories. Something that stood out this year is the growing number of customers who pay to Action for their daily essentials. This resulted in a strong performance of our 4 FMCG categories, food and drink, personal care, laundry and cleaning, and pets. Next to this, products that help our customers deal with increasing energy prices such as plates and electric heaters, were very popular. Currently, we see an increasing demand in essential items. And previously, we saw other types of products increasing in popularity. The breadth of our 14 categories allow us to respond well to changes in customer demand. In 2022, we had good availability of products in our stores because of an improved supply chain performance. We faced sea freight fluctuations, inflation and COVID restrictions, but we were able to manage these disruptions well. Over the years, we have built our network capacity and improved our planning capabilities. And next to this, we improved collaboration with our logistic partners. This has led to improved store service levels and good availability of products. We also have seen the impact of inflation in our supply chain, but also in other areas of the business. We have dealt with the impact of inflation by disciplined price and cost management, the flexibility in our assortment is an asset. This provides us the option to choose alternative products when needed. Also in other areas, such as energy and labor costs, we had to absorb the impact of inflation. But as a discounter, cost discipline is in our DNA, and we critically reflect on areas of cost that we can manage. Although we did increase our prices, we did not fully pass on cost increases to our customers, absorbing some of the higher cost of sales. This had a slightly negative impact on the gross margin but also allowed us to attract more customers because we increase the price distance to our competitors. As we grow both in like-for-like and through expansion, we and our customers keep on benefiting from the efficiencies [indiscernible]. Last year, we added 280 stores. We opened most stores in Poland where we added 81 stores. In France, our #1 market, we opened 73 stores. And Germany showed great progress but continued to be impacted by challenging circumstances in a market for locations. We plan to increase the opening pace in Germany in the years to come. Within our newest markets, Italy and Spain, we see a strong store potential. After successful pilots, we are ready to increase the expansion base in these countries. In Italy, we added 21 stores in 2022, and we now have a dedicated local team in place. The search area for expansion have been extended to the more central parts of the country. We plan to open a DC name in Milan in 2023 to support our strong growth in Italy. Also in Spain, we have outperformed our pilot expectations. We opened 5 stores in the Barcelona, [ Girona ] area, and we are currently completing our local team and expect to open a DC in New Madrid in 2024. This will facilitate the further growth of our stores in Spain. Our people are a fundamental part of our success together with our unique formula. We provide work to 80,000 employees in our stores, DCs and our offices. In addition, we contribute to local economies, and we created over 8,000 new jobs in 2022, doubling our job creation over the year before. In doing so, we provide jobs to a wide range of people, including people who would otherwise find it difficult to enter the labor market. And we also adjusted to reward packages last year resulting in wage increases for our employees, helping them dealing with increased cost of living. And finally, we invested in our people, resulting in over the 2,500 internal promotions. At Action, we find it important to act as a responsible partner in society. We provide a good financial support and space in our DCs to the victims of the ongoing war in Ukraine, and the people in need in Syria and Turkey after the devastating earthquakes. We also made progress in our Action's sustainability program. We now have fully supply chain transparency for all private label products. We reached a milestone of 100% recyclable packaging for all private label products. This means that we no longer use PVC or black plastics. 85% of our stores do not use any natural gas. We are now working and disconnecting the remaining stores from the gas grid, and all new stores are already directly equipped with heat pump. Regarding emissions from our own operations, we realized a 40% reduction in 2022 compared to 2021. And let me highlight the key initiatives that supported this. The energy consumption in our stores was reduced. We were able to lower the energy usage by an average of 10% per square meter. We reduced our transport emissions by 11%, achieved by using HVO biodiesel instead of regular diesel. And most importantly, we have increased the share of energy from renewable sources. In 2022, 90% of the energy used for our stores, DCs and offices came from the renewable sources. We probably emphasize on sustainable choices. We are committed to make sustainability accessible for everyone. We will continue to improve the quality and sustainability of our products in stores even if market circumstances are challenging. This brings me to the end of the business performance update, and I will continue with an update on our strategy. Our strategy has remained unchanged. Growth is driven by strengthening our unique customer proposition and further international expansion. This requires a simple, scalable operating model. And in the last years, we increased our focus on sustainability. Last but not least, our people are essential to our success. And as we grow, the focus on people will become even more important. The strategy provides a direction while our business model allows to scale at low cost. We can offer low prices due to our ability to buy products on a large scale, the flexibility of our assortment and our location choices. Due to our high volumes, each of our trucks deliver a high volume to only a few stores, resulting in relatively low transport cost. And finally, we maintain a simple business model and have low overhead and marketing spend. Then our assortment, we offer 6,000 items across 14 product categories. We work with 3 product types. The first one is A-brands, which support our quality perception and allow our customers to easily compare our prices to other retailers. Our supplier brands, allowing us to offer many surprising items for our customers. And the last one are Private Labels, for which we focus on specific product areas. The goal of our Private Label segment is to drive footfall with everyday essentials and increase quality perception as well as the store experience of our customers. 1/3 of our assortment is fixed, including articles such as cleaning wipes, while 2/3 of our assortment changes over time. A recent example of our in-out assortment is the Pink-stuff cleaning paste, a recently hired cleaning product. We introduced 150 new articles every week, and our customers find new products every time they come to an Action, which invites them to visit frequently. For our product offering, we focus primarily on low price points. Despite pressure from inflation, we were still able to offer more than 60% of our volume below EUR 2. And the following video gives you an impression of a visit to our store. [Presentation]

As you have just seen, shopping at Action is a pleasant shop experience, and I would like to stress that the store in the video is representative of all stores. Everything in the store is focused on speed and volume similar to a food retailer, except our focus is on nonfood. Our store layout is simple with wide aisles and a uniform blueprint lay out across all stores. Our customers can find both the daily essentials, such as shampoo and toilet paper, as well as many surprising items. We sell 40 categories and introduce 150 new articles every week, which keeps our customer interested and invite them to visit our store frequently. One of the key elements in our formula and why customers like us is our low prices. In the past half year, we have managed to increase the price distance to our competitors in all our markets. We measure our price frequently and benchmark with competitors. In case we do not have the lowest price, we act by lowering our price, renegotiating conditions or changing the product for a different one. While offering the lowest price, we will never compromise on the quality and sustainability of our products. On this slide, we have highlighted 2 product examples that underline this approach. The first products are wooden cloth bags. We upgraded this spring mechanism to ensure that the grip improved, increasing by 20%. And the next example is Zenova sun care and Action Private Label. This product is microplastic-free and reef-friendly. It has received several awards and the packaging is partly made of recycled plastic. Investing in our private label products allows to offer low-cost, high-quality products that customers value. Good examples are the Max&More – Mascara and Super Finn dishwasher tablets. Our Max&More – Mascara has received the Best Buy award in Belgium. We improved the formula and changed the brush for more volume. We also improved the formula of our Super Finn dishwasher tablets, and Super Finn received several awards. In the coming years, we will continue to invest in our Private Labels by further improving the quality and sustainability of our product. Currently, we have a total of 73 Private Labels across 40 product categories with Private Label sales increasing in line with the overall growth of our company. Private Label sales in 2022 represented 18.5% of total Action sales, underlining the importancy of our Private Labels for our customers. The Action proposition appeals to everyone, actually attracts customers with a wide range of incomes and education levels, both in mature as well as in our new markets. This broader view gives us confidence regarding our wide potential in new countries. The strong appeal of Action is reflected by the growing awareness of our brand. Growth is mostly driven by word of mouth from our loyal customer base and our customer base is getting bigger and bigger. Our new countries benefit from this by faster-growing awareness. There is still opportunity to increase brand awareness and penetration in our newer markets as well as in Germany. While we invest in digital, allowing us to optimize our marketing mix, our relative marketing spend will remain stable as our formula is basically selling itself. And I'm proud to highlight that this is reflected by several prices that we've won in 2022. In our #1 market, France, we received the award for being the third most loved retail brands. Additionally, we are proud to have received the award in Poland for most loved nonfood retailer, but also in our mature market in Netherlands, we won best department store in the Retailer of the Year election. All of these are prizes voted on by consumers. Our customers value us for our low prices and surprising product range. This is also made possible by the mix of suppliers we work with, our sourcing base. Over time, we have increased our cooperation with A-brands as prices of these products can be easily compared and they drive quality perception. Next few days, we have always had a strong cooperation with importers and wholesalers. These suppliers are almost an extension of our mind. Due to their specific product knowledge and commercial sense, they supply us with many surprising on-trend products. Thirdly, we are developing our share of direct sourcing. This allows us to buy at low prices and to enable our sustainability ambitions. And we leverage the knowledge that we built from direct sourcing and the interaction with other suppliers. Lastly, we work with couple of traders. The power lies in the combination of these 4 sourcing types. They provide us with multiple supplier options for articles and does ensure a healthy competition. Even more importantly, unique aspects of each supplier type is reflected in the products our customers can find in stores. We are continuously searching for commercial opportunities. As mentioned in previous years, we're aiming to increase our direct sourcing share over time. At the same time, we want to achieve more diversity in the locations from which we source. And this is because there are interesting commercial opportunities in new countries such as India, Vietnam, but also to reduce the impact from potential future disruptions. Currently, we are already sourcing a large share of our products from Europe and the Balkans region, and we want to increase the share of direct sourcing from these areas to enable our growth, but also our sustainability ambitions. Another priority of our company is to invest in a digital ecosystem and in customer touch points. Our objective is twofold. By engaging with our customers online, we aim to attract more customers to our stores. And secondly, by linking customer data and understanding our customers better, we can leverage these insights into our marketing and other business areas. A few examples to underline this point in the past year. We launched the Action app in 3 new countries in 2022, and this year, we added also Luxembourg and Slovakia. And we increased sales of our online flash sales proposition which is currently online available in the Netherlands and focuses on higher price points. Although we are still in a learning phase, we are happy with the results so far and are looking into extending to a new market. The results of our digital investments are clearly feasible by the growth in our online reach. For example, we now have over 2 million followers on both Instagram and Facebook. The number of app downloads in my Action accounts had increased strongly compared to 2021. This allows us to better understand our customers and tailor our offering to their needs. We see that our strong formula combined with the increasing online reach through our different channels results in higher awareness. This is the case for our existing markets and in new countries we started. For an example, during our recent opening in Slovakia, over 11,000 customers visited our stores on the first day. Within Action, it's all about stores and customers. We keep on investing in our existing store base to continuously create a pleasant shopping experience for our customers as well as a good place to work for our employees. We further roll out our 2.0 format across our store network. The most important aspects of the new format are a wider entrance, updated colors and signage that guide our customers. This results in a more fresh and modern look. At the end of 2022, over 1,200 stores have been transformed and of course, all new stores are built in the new format. In 2022, we performed a total of 76 refurbishments, enlargements, relocations and updates of our stores. While investing in our store base, we focus on sustainability as well. Where possible, we make use of recycled materials for example, for our racking. And additionally, we removed gas installations to make the transition to renewable energy possible. We drive innovation by continuous investment in proven technologies to improve store processes for our employees. A clear example is the rollout of our new handheld terminal for our store managers, which makes the ordering process faster and more data driven. The Action Sustainability Program is an important element of our strategy. We focus on people, tenant, product and partnership connected to the UN sustainable development goals. And let me guide you through our ambitions for each of the 4 pillars. Let me start with People pillar. We have a strong commitment to our people and society. Our people are proud to work for action, they value working together and the development opportunities that actually provides. Our people are the ambassadors and they reflect our values and make us unique as an organization. We invest in our people as they are key to our current and future success. And as a responsible partner to society, we contribute by supporting local initiatives in the communities we operate in. We have improved children's welfare through different partnerships and programs. We have been a proud partner of SOS Children Villages International since 2018, and for every store, and DC, we sponsor from one child. We believe in offering sustainable products at the lowest price and with our size, we can make a significant impact. We have sharpened our short-term emission targets based on the progress already achieved in 2021. We are now committed to reduce our absolute emission from our own operations with 60% by 2030. Additionally, we have accelerated our ambition to make our store carbon neutral by 2024, and we aim to reduce energy consumption in our stores by 15% per square meter by 2024 compared to the baseline year of 2021. We started a pilot in 2022 with electric trucks, and we continue the transition to more eco-friendly fuels. Regarding our Product pillar, we focus on offering products that are compliant, safe and responsibly sourced while offering good quality products at the lowest price. Also for this pillar, we have sharpened our short-term goals. We will only offer 100% sustainable cotton by 2023 instead of 2024 and 100% sustainable timber by 2024. Our packaging will now be 100% recyclable by 2025. And we will achieve 100% private and white label supply chain transparency in 2025. Next to our focus on sustainability, we're also focusing on building our DC network to ensure that we have sufficient capacity to achieve the desired product availability levels in our stores. In 2022, we opened our third hub in Le Havre, France. Our newest DC opened in [ Ensuès-la-Redonne, ] France in January of this year. And next to that, we expect to open 2 more DCs in 2023, one in Italy and one in Poland. All our new DCs are built using the highest green sustainability standards. In 2023, we will continue to invest in the future proof DC network to support our store growth. This overview shows a clear picture of our Action is able to drive growth in new country in a short period of time from pilot phase to several years of operations. Our expansion is strong in the early years and after accelerates when countries and their organizations are maturing. After the entry in France in late 2012, the country quickly developed into what is now our largest market. We have now operated for more than 10 years in France. And in 2022, we opened 73 new stores. Poland is another example how we successfully established ourselves in a new market. In 2022, Poland was our #1 market in terms of new store openings. And also in 2023, we intend to open many new stores there. Highlighting only France and Poland, obviously, does not provide the full picture on our expansion so far. Even in the Benelux, which is our most mature market, we continue to open new stores. The success of openings in Italy and Spain and most recently in Slovakia, clearly shows that Action is welcomed with open arm by customers in every country we enter. We continue to learn from our experiences in the past and apply these lessons learned when opening new markets. In 2023, we will prepare the opening of our first store in Portugal, which we expect to open in 2024. Our new markets, together with the remaining potential in our existing markets, provide significant opportunities of further expansion. Our current estimate white space store potential in existing and identified in scope countries is 4,400 stores. This number is a conservative estimate based on a population density per store of over 60,000 in all countries outside of the Benelux region, where the current actual density is closer to 38,000. This is influenced by both our mature level and the high population density of the Benelux. We plan to revise the density numbers over the coming years as we increase store and DC coverage in our newer countries outside of the Benelux. And let me be clear, although our focus is on increasing the expansion base, the quality of our new stores and the profit contribution will always come first when considering new locations. I would like to conclude by underlining that we intend not only to accelerate our expansion base but also our sustainability efforts and the company priorities I discussed. We have started 2023, a year in which Action celebrates its 30 years anniversary with a strong performance. Now I will hand over to Joost Sliepenbeek, who will give you additional background on our financial results and also provide more details on our 2023 performance to date.

Thank you, Hajir. Good morning. My name is Joost Sliepenbeek. I've been the CFO of Action since 2018. In the next 35 minutes, I'm going to present and explain our financial performance in 2022. After that, I will provide an update on our 2023 financials, up to and including last week, which was week 11. My first slide is one that I've been using over the last 4 years. It is the financial model behind our strategy. The fundamentals of our financial model remain unchanged. They also explain the resilience of our performance. Resilience in 2 years with COVID restrictions and as in last year, resilience in times of supply chain disruptions and fast rising inflation. The inflationary environment has resulted in a cost of living crisis for many people and an increased demand for discount retailing. Our formula has again proven to attract customers who are looking for essential products and a great surprise, all for the lowest price. Our continuous store expansion is an important driver of our performance. We increased the number of store openings compared to 2021 and added 280 stores in 2022. Store expansion contributes to our top line growth, but also results in gross EBITDA and value. Our performance drivers have not changed compared to previous years, and therefore, many of you will recognize this slide as well. I will talk you through the economics. First, the payback of our stores is very attractive. We run all our stores and the average investment spend of circa GBP 479,000 per new store is relatively low. Historically, we've had an average payback of around 1 year. Second, all stores opened before 2022 contribute to our results at the level of store contribution margin. Later in my presentation, I will explain more of store contribution. Third, with an average payback of 1 year, our store expansion is effectively self-funding. And for clarity, working capital is not included in this calculation. As you know, we operate with a negative working capital. Therefore, the payback period of new stores will even be shorter if we also took into account the increase in working capital. And fourth, the additional sales resulted in significant EBITDA margin expansion of 150 basis points in 2022. But I will elaborate on the drivers of this margin expansion later in my presentation. In 2022, we realized a 30% increase in net sales and a 46% increase in operating EBITDA. Those net sales growth and EBITDA growth accelerated in 2022 compared to 2021. In comparison to our average growth over the last 5 years also demonstrates that 2022 was a really exceptionally strong year. By the way, by now referring to EBITDA numbers in my presentation, I also show and mention numbers that exclude the impact of IFRS 16. In the back of the presentation, we've added an appendix with all the numbers, P&L and balance sheet, including IFRS 16. Our reported like-for-like sales growth for 2022 was 18.1%. The reported like-for-like can be broken down to a price and a volume effect. The impact from a higher average price per product on our reported like-for-like was 7.8% in 2022, while the effect from increased volume was 9.5%. First, I want to explain a bit more on the increase in the average price per product. Comforted with price increases in our cost of goods throughout the year, we have not always passed on the higher purchasing prices to our customers immediately and/or in full as part of our gross margin management. Offering the lowest price remains one of the key elements in our formula, and we are pleased that we were able to increase average price distance to our competitors in 2022. And our volume increase, we've seen a like-for-like increase in the number of transactions by 22.2% as a result of increased customer footfall. Our reported like-for-like number is also impacted by COVID restrictions in 2021. In 2022, the impact of COVID restrictions on our stores was limited as we were only forced to grow stores in the Netherlands and reach 1 and 2, and we had to perform vaccination entrance checks in certain German states and Austria until mid-February. In 2021, our stores were impacted by 2 periods of low [ cost. ] First, in weeks 1 until 22, with store closures or assortment restrictions across all markets, except for Poland. And second, weeks 47 until 52, where store closures impacted the Netherlands and with assortment restrictions in Austria. And in addition, in that period, again, in certain German states and Austria, we were required to perform vaccination entrance checks during this period. In my presentation last year, I explained our methodology for normalizing sales in 2020 and '21. In short, we normalized our sales for the negative impact of store closures and the positive effect after reopening. For 2022, we did not normalize our sales, for no normalization for the stores that were closed in the Netherlands for 2 weeks and no normalization for the reopening effect. The reason for not normalizing 2022 sales is twofold. First, simplicity. By not normalizing in 2022, we can hopefully refrain from showing normalized developments again in 2023. The second reason is the level of impact in 2022 which was de minimis. Our normalized like-for-like for 2022 is therefore calculated based on 2022 actuals compared to the normalized like-for-like for 2021. For 2022, the normalized like-for-like is 9.7%. This is lower than the reported number because the impact of restrictions in the base year 2021 was bigger than in 2022. When comparing normalized like-for-likes for 2022 and 2021, the normalized like-for-like is 220 basis points higher in 2022. This is primarily explained by the strong performance of our essential assortment, centered around our fast-moving consumer goods categories and strong seasonal performance in the fourth quarter of 2022. As of next year's capital market seminar, I will no longer present the normalized like-for-like number. The impact of COVID restrictions on 2022 sales were limited, and we do not expect restrictions going forward. On this slide, we show 2022 reported a normalized like-for-like performance, and I will make some comments on each quarter. Quarter 1 in 2021 was very strong with a normalized like-for-like of 18%, resulting from strong sales across all our open markets. Since COVID restrictions were more limited in quarter 1 of 2022 compared to '21, we were able to report a like-for-like 27.7%. But on a normalized basis, a slightly negative like-for-like of minus 0.7% remains. The explanation lies on the one hand, a strong performance in the first quarter of '21, where, for example, we benefited from the fact that in Poland, some of our competitors were forced to close due to COVID restrictions. And on the other hand, performance in the first quarter of '22 was negatively impacted by vaccination entrance restrictions in certain German states and Austria, for which we do not normalize. As of quarter 2 in 2022, we were no longer impacted by COVID restrictions in any of our markets. In '21, we were impacted by restrictions in several weeks of quarter 2 in most of our markets, again, with the exception of Poland and also Italy and Luxembourg. This explains by our normalized 2022 like-for-like is lower than reported in quarter 2. In quarter 3, we were not impacted by COVID restrictions or reopening effects in either year. And therefore, reported a normalized like-for-like in quarter 3 are equal. Strong like-for-like performance in '22 resulted from significant growth in the number of customers who were increasingly buying essentials, mainly within our FMCG categories and decoration items. In quarter 4, it was reported a normalized like-for-like performance were exceptionally strong in 2022. Record-breaking Christmas sales and the impact of COVID restrictions in '21 resulted in 23.4% reported like-for-like. In quarter 4 of '21, we had very strong seasonal sales as well in November. But we were sold out too early in period 12. As a result, our full year like-for-like performance in 2022 post on a normalized and reported basis outperformed our already strong performance in 2021. On this slide, we present the absolute sales growth in the years 2020, '21 and '22, in all cases compared to 2019, and only for stores that were opened before 2019. In other words, a like-for-like group. The graph only includes which of these stores were both open and selling a full assortment. And there, I need to note that COVID restrictions vary by country, and therefore, also the periods included in the analysis for each country varies. Czechia, Italy and Spain are not included in this analysis as the first stores were opened after 2019. As you can see from the graph, the performance of Action has been very strong in all countries without exception. Having said that, there are some differences between the years and there are some differences in the development of individual countries versus the overall Action development. I will talk you through the most notable differences. In our most mature market, the Netherlands, we still realized strong growth in all years compared to 2019. The performance in our largest market funds was above average compared to Action total. We performed very strongly in Germany, a 29.2% growth if you compare 2022 to 2019. Now let me give you a little bit more detail on our performance in Germany. In 2020, we had both a very strong reopening as well as rewarding towards the end of the period because of the early announcement of the second lockdown. Also in 2020, sales were helped by the reduction of VAT from 90% to 60% for the high rate and 75% for the lower rate. And in 2021, we cycled against that strong performance in 2020. Additionally, we had a variety of COVID restrictions in various German states that had a very significant impact on customer behavior. However, these stores and weeks were not excluded here because the stores were open and they were selling the full assortment. And then in 2022, performance was again strong, resulting in a very significant 29.2% growth between 2019 and 2022. And then the strongest performance is observed in Poland, where an impressive 46.3% growth is realized compared to 2019. And I have to note that the number of stores included in the calculation is only 25. In '21, our performance was positively influenced by closure of several competitors due to COVID restrictions that were not applicable to Action. Our strong performance continued in Poland in 2022. We have a record number of 282 store openings in 2022, in line with our mission to open more stores than in '21. We also had to close these stores, not because of performance but because of a zoning issue with the Netherlands and the expropriation in France. Consequently, we added 280 stores, bringing our total number of stores at year-end, 2,263. The main growth countries were Poland, 81; France, 74; and Germany, 46 added. Notably, we also opened 21 stores in Italy, which is together with Spain, considered an important future growth market. The number of store openings are white space in these countries underline our ambitions to grow even further. For 2023, our ambition is to open 300 stores, which will be the first time in the history of our company. The main growth countries will again be France, Poland and Germany. We will also focus on expanding our store base in the recently entered countries, Italy, Czechia and after a successful pilot period in 2022, also Spain. Earlier this month, we opened our first store in Slovakia, where we now have already 2 stores. Gross margin is an important driver of our strong performance. Inflationary pressures impacted our cost of goods sold as of quarter 4, 2021 with an even stronger impact in 2022. These measures become even more focused on our margin management. The flexibility of our formula is a very valuable asset in this process as we deliberately offer a changing range of products across our [ 4G ] categories. Besides providing a surprising assortment to our customers, this allows us to buy only products that provide an attractive margin. For products that were too severely impacted by price increases from our suppliers, we always have the option to delist the product. Versus 2021, our overall gross margin in '22 was 40 basis points lower. As I explained last year, our gross margin percentage in '21 was impacted by 2 incidental drivers, being a lower promotional pressure and the timing of price increases. I did not expect this to repeat in 2022, but I was only partly right as lower promotional pressure did continue in '22. However, in '22, we were also negatively impacted by higher sea freight costs from our direct import purchases and a negative effect from mix to the assortment sold, together resulting in a 40 basis points lower gross margin. Nevertheless, we can conclude that our successful margin management, again, resulted in consistent and stable margin performance across categories and over periods in 2022. Over the next couple of minutes, I will talk about profitability. In this slide, I want to analyze profitability for stores that were opened for a full year in 2019, which are 1,321 in total. The slide shows the average store contribution margin by country. Our store contribution margin is calculated as the adjusted gross margin realized by a store minus all operating costs that are directly attributable. In 2022, this includes the 40 basis points lower gross margin, but not the full operating leverage because it doesn't include indirect expenses, supply chain and headquarter costs. Overall, the increase was 230 basis points for this cohort of stores opened before 2019. On this slide, we see the contribution margin of our stores indicated on the left y axis by the contribution margin per store in euros, and that is also reflected in the blue bars. You also see on the slide the contribution margin as a percentage of sales on the right y axis, and it's indicated by the orange dots. The graph includes all stores opened before the 1st of January 2021. It shows that all our mature stores are profitable. We do not have any loss-making stores, all our stores contribute positively. Actually, we do not have any mature stores with a store contribution margin below 10%. And additionally, we never had to close a store due to underperformance. Both these facts underline that while expanding our store base, we've also always focused on the good quality of our new stores. The statement of all our mature stores being profitable is also true if we add supply chain costs to the calculation. Our increasing scale together with store and country maturity has a positive effect on our profitability. In 2019, slightly less than 75% of our net sales was achieved by stores with a contribution margin above 20%. In 2022, this share has increased to almost 90%, while net sales over the same period increased by EUR 3.8 billion. Leverage is also visible in the development of our supply chain costs as a percentage of net sales. Our increasing scale allows us to operate more efficiently within our supply chain. An important driver is the efficiency of our distribution network indicated by the average kilometers distance from our stores to a DC. The average distance decreased by 12.3% of 2019 to 2022. After the strong increase in operating EBITDA margin of 120 basis points in 2021, we again realized a very significant increase in 2022 of 150 basis points. I will talk you through the most important drivers behind our EBITDA margin expansion. I've already explained the minus 40 basis points gross margin on the slides about gross margin. Operating leverage is the result of a 30% sales growth and in particular, 80.1% like-for-like, including 7.8% increase in our average sales price. Inflation impacted various of our cost lines, thereby negatively impacting our EBITDA margin by 60 basis points. But I want to highlight that there is a delay in the increase for some of the cost lines. For example, the majority of our rent contracts will be indexed in this year, so 2023, with higher rates compared to 2022. Therefore, the impact of inflation on our OpEx lines is expected to be more significant in 2023. In 2021, we incurred EUR 24 million of extra wage costs to maintain social distancing with door policies, extra hygiene measures, et cetera. In '22, the additional costs directly related to COVID were very limited, positively impacting our EBITDA margin by 40 basis points. And then other factors contributed another 40 basis points, and this mainly relates to the impact of lockdowns and restrictions in 2021. So overall, we can conclude that our operating model and tight cost control have contributed to the strong expansion of EBITDA margin. Operating leverage from price increases was only partially offset by cost inflation. And therefore, one could say that we had somewhat of a tailwind from inflation in 2022. Looking at 2023, our normal financial model is that sales growth again will translate into operating leverage. However, in 2023, we will also bear the full effect of the higher inflation on our OpEx lines. In other words, the tailwind that helped us in '22 will pivot into a headwind with the full impact of high inflation in our OpEx this year. If I add these factors together, in terms of the expected EBITDA margin for 2023, I feel pretty safe in guiding towards an EBITDA margin remaining at least at the level of 2022. In 2022, our CapEx increased by [ EUR 47 ] million or 26% to EUR 230 million. As a percentage of sales, CapEx was 2.6%, down from 2.7% in 2021. Over the last 6 years, we see a clear downward trend in CapEx as a percentage of sales, reflecting our increasing scale. Our store expansion CapEx increased to EUR 135 million in 2022, which is partly explained by 13 more store openings. A larger part of the explanation lies in higher average CapEx per new store, which was EUR 480,000 per store in 2022 compared to EUR 435,000 per store in '21. Impacts of inflation and scarcity of materials led to an upward pressure towards the last quarter of '21, which continued over the full year in 2022. And as a consequence, our CapEx per square meter increased by 3.3% from EUR 490 per square meter to EUR 433 per square meter in '22. Also, the stores we opened in '22 were slightly larger in size compared to our '21 openings. CapEx for new DCs was EUR 9 million. As I explained last year, DCs had a net positive impact on our cash flow of EUR 50 million, and the driver of this was the sale of our assets of DC Osla. Our investments in technology in '22 increased compared to the years 2019 to 2021 as we continue to invest in a number of large-scale infrastructure projects. One of the elements of our financial model is excellent cash generation. This translates into a high cash conversion historically gradually increasing from 56% in 2017 to 93% in 2021, with a similar pattern being visible in operating cash flow as a percentage of net sales. Similar to last year, the calculation of cash flow includes CapEx for new DCs in all years presented. The 78% for 2022 is somewhat lower than 2021. This can mostly be explained by a very significant improvement in net working capital in 2021, resulting from the composition and movement of our inventory as well as the sale and lease back of DC Osla, which increased our operating cash flow in 2021 by EUR 32 million. In 2022, the impact on net working capital reversed and CapEx for new DCs resulted in a cash outflow of EUR 9 million. Nevertheless, our cash generation remained solid in 2022 with a cash conversion rate above the years from 2017 to 2020. Not included in operating cash flow are the dividends that we paid in March and December of last year. Including the December dividend payment, we ended the year with cash and cash equivalents of EUR 697 million. This slide summarizes our operating performance over the last few years, where mainly 2020 and '21 were impacted heavily by the COVID pandemic. To be clear, this slide includes all the impacts that represent [indiscernible] basis. Finally, I want to give you an update on current trading in 2023. So today, we are in week 12. And as you know, we have a 52-week and 12-period reporting calendar with quarters of 3 periods with 4, 4 and 5 weeks. So this means that we are now in week 4 of our period 3, it's still 1 week to go until the end of the first quarter. The information in the slides covers year-to-date until last week being week 11. As you can see, our overall sales growth for these 11 weeks was very strong at 37%. Like-for-like was 24.8%. When comparing to last year, this should be compared to normalized like-for-like, which as you've seen on one of the previous slides, was minus 0.6% for the first quarter. Based on year-to-date sales and like-for-like performance, we expected -- we expect a strong first quarter for both sales and EBITDA growth. In 2022, our growth accelerated in the second half of the year, especially from period 9 onwards, which means that we will be cycling against that strong performance in the second half of 2023. Nevertheless, we are confident to achieve strong results again in 2023. The like-for-like growth year-to-date was again mainly driven by a 22% growth in transactions. We ended last year at 2,263 stores. Our store openings in 2023 are on track. Up to an including week 11, we opened 26 stores, including 2 in Italy, 3 in Spain and 2 in Slovakia. Also, we had to close 3 stores, 2 because, of course, closures on site redevelopments; and 1, which is a delayed relocation. So far this week, we've opened an additional 3 new stores, 1 in Slovakia, 1 in Spain and 1 in Poland. Today, our total number of stores, therefore, is 2,289. Last Sunday, our cash and cash equivalents stood at EUR 802 million. Same as last year, we plan to pay a dividend in March. It will be paid next week. After this dividend, our cash label remains solid, especially given that in light of our normal seasonality, we are strongly cash positive from March onwards. And with that, I hand back to our Chairman, Simon Borrows.

Thank you, Joost. So Action has started the year very well, and we're on track to see significant step-up in run rate EBITDA at the 31st of March. And as Action's main shareholder, we're looking forward to receiving another dividend next week. 2023 is the last year of Action's 5-year 2019 plan. And as you can see, the company has already exceeded the 2 key KPIs. 12 months early in the case of sales and almost 18 months in the case of EBITDA. With the company having outperformed the 2019 plan so materially, we've decided that we don't wish to take a risk on another undercooked plan again. So we're presenting you with some key guidelines for your modeling rather than a specific plan. The details are set out here and cover the 4 years starting in 2023. In short, we expect to open between 1,300 and 1,400 stores in the period, starting with 300 this year and exceeding 400 in 2026. In terms of the like-for-likes, we assume mid-single-digit growth in low inflation years and high single-digit growth in high inflation years. And for the avoidance of doubt, 2023 looks like being a high inflation year. And while continuing scale effects will put upward pressure on the Action's -- on Action's EBITDA margin, we will continue to prioritize customers and so we're not planning more than 40 basis points of EBITDA margin expansion over the next 4-year period. Let me bring things to a close by expressing my gratitude to Hajir and Joost and all the Action team for another very strong year in 2022 and an excellent start to '23. The 3i team is very involved with Action and has been hugely satisfying to support Hajir in her first year as CEO. She's clearly enjoyed the new role and has been very sure footed about key commercial judgments and people decisions. Action continues to have enormous white space in front of it. And the early trading from Italy, Spain and Slovakia is already well ahead of our plans for each country. Let me close with this chart that I've shown you before. Action's development to date on white space potential, which is on track to join a very rare group of retailers where growth extends over decades, not years. Okay. I'll now hand back to the moderator for commencing the Q&A session.

[Operator Instructions]. We will take our first question from Luke Mason of BNP Paribas.

Just 3 more financial questions, please. Firstly, just on price increases. 7.8% increases in 2022. How should we think about that in 2023? And then secondly, on gross margin, you had talked about kind of cost of goods deflation in factories in the Far East. How should we think that impacting kind of gross margin for 2023? And then thirdly, just on kind of the addressable market longer term. I know the addressable market is based on kind of, I think, 7 countries you've analyzed, which doesn't include the likes of the U.K. or the Nordics. Kind of going ahead of ourselves here, but do you think those regions could be addressable in the very long term and even like the U.S., for example?

Joost. Do you want to take the first?

Yes so your question was, if I heard it correctly that in price increases last year, we had a 7.8% increase in the average price and how is that expected to be in 2023? What I can say is that if I look at year-to-date performance. So again, that is until last week, we're actually slightly above where we ended for the full year last year. Having said that, looking at what we are currently seeing in our buying, I expect a lower percentage for the remainder of the year.

Do you want to say anything about gross margin or...

Firstly, I don't think that price is going to have the impact of the price margin because we're still able to work out the flexibility of the assortment.

But are you seeing gross margin inflation as a result of what supply and growth [indiscernible]

Well, it's a little bit of a combination. So we see that happening for items, which we're sourcing from the Far East. For example, we're not seeing that in Europe. So at the end, I think we're going to sort it out.

Okay. And Luke, on your last point, I don't think any territories are completely out of scope. So all those countries you mentioned, I'm sure at some stage are going to come under the review of our property teams and our strategy teams. But we do have 5 very big markets to us for expansion at the moment, which is why we feel we're very confident about increasing the rates of store openings as we forecast in the plan. So that's Germany, that's France, that's Poland, that's Spain and Italy. So they are the priorities for the next few years.

[Operator Instructions]. We take the next question from Warwick Okines of BNB Paribas.

So the question that I'm interested in is really the gross margin investment you think you'll be able to do over the life of the next 4 years. You talked about sharing the gains with consumers from your leverage. How much opportunity do you think there is to widen your price advantage against your peers? And how much do you think gross margins could be allowed to drift downwards in order to still deliver a 14% EBITDA margin?

Hajir, do you want to say -- I know it's hard to quantify, do you want to say something about that?

Well, I think it is hard to quantify. But having said that, I think as we grow as a company, we also have a scale of benefit. So for us, it's key that we are maintaining the low spots. I think we have shown that we're very good in that. Although we had a period of inflation, we are still able to have the lowest prices. I think we're going to continue doing that.

I think as you saw on a slide in Hajir's section that we've maintained a pretty significant distance between us and our High Street competitors on pricing. I guess what surprised us is the degree to which that gap has elevated over the last 15 months, as many retailers have decided to put very significant price increases through, where in essentials, in particular, we've been moderating our price increases, which is a [indiscernible]. So I would think will be a bit more of the same while we remain in this high inflation environment.

The next one is from Philip Middleton of Bank of America.

Just a couple of questions. Firstly, it looks to me like you're guiding for margin improvement to be a bit back-end loaded because I think this year, you've got some headwinds, but that will sort of resolve itself in due course, just to check that's right. And also, obviously, your leverage is phenomenally low. Nobody would expect you to do a leverage recap under these conditions. But what's your medium-term capital structure objective, please?

Thanks, Philip. Joost, do you want to tackle those?

Yes, although I'm not completely sure if I understood it correctly.

It is related to the cost of goods sold and the inflation. Are you expecting the margin benefit to come on in the second half of the year?

No. Actually, as I've shown this year, but also previous years, our margin management is that we want to keep the margin as consistent as possible over categories as well as over periods. And as I said, we will have this extra impact of inflation in our OpEx lines, but that we will offset with sales leverage like we did last year. So that's actually why I guided towards this, let's say, minimum at the level of 2022.

Yes. So Philip, it looks like being fairly balanced across the year, we do all management of categories appropriately. And then in terms of capital structure. Well, I agree with you that people want to be going to the banking markets for a big refinancing at the moment. But I do expect that if we get to some calmer waters, then we will be looking at that topic in due course, because the group is going to be very underlevered by the end of this year if we're not able to do that, too. So that will be on the plan, but there's nothing concrete at the moment, if I can put it that way.

The next one is from Vikram Kumar of [ Kuvari ].

Can you hear me okay? There's some problems dialing in.

Yes.

Okay. Great. Yes, great. I just want to ask, when you see a period of higher like-for-like, like you've seen you talked about the -- in the second half '22 and the start of this year, other than inflation, which I know is in there. Can you just give us some flavor of the drivers of kind of category spend that really work? Because it was really good seeing that video of the stores. And obviously, there's lots of household-type shelf products, which i.e., from some companies in some regions that people have got too much on their shelves at some of the FMCG guys have talked about that. But clearly, you're not seeing that your customers are still buying. What are the kind of categories that you're seeing increased spend? Or is it really just increased footfall? And if so, where do you think your major share donors are as the consumer spends more with you? Where does that come from, please, in these countries?

Hajir?

Yes. So I think in general, it starts with we're having more footfall in our stores. And I think there is something changed in terms of customer behaviors and actual stores first. As I showed in my presentation, if you look at category performance, then the key categories, which are standing out are the FMCG categories, personal care, food and drink, pets, laundry and cleaning and household is after that. But it is, again, I think, confirming that we are being seen as the store which customers are visiting the first before they go to other stores, including the food supermarket. In other categories, which have essentials, but these categories are really standing out. Yes. And I think we have seen this for quite a while.

Okay. Okay. That's really helpful. So in some of those sort of household personal care, pet care, taking from the shelves off the food retailers, you obviously also sell those products. Do you think that's some of the biggest ones that where you're taking footfall and volume from?

Definitely. I think what Simon already said, so if you look at our prices, we're very keen on having the lowest price. And what we have seen with all the price increases is that competition has increased prices very rapidly, while we have not done that. And that is really something where you see that the gap in Action and competitors become even bigger, and that's driving a lot of footfall.

I mean you've seen the Kantar price inflation figures across supermarkets and you compare that with the price increase number that we put out there about 7%.

Yes. Okay. And one last bigger picture question, sorry, is given that we've all got so used the incredible success story of Action in terms of both the rollout, movement to countries and what we've discussed here about growth of footfall, et cetera. What do you guys see as the biggest risk to executing rather than us taking for granted, I guess, the execution of that very attractive plan you've laid out very clearly today? What do you guys now see as the biggest risk to that story?

Let me say something and Hajir, you might want to add to it. I think the biggest risk on this journey have been the externalities. I mean, we haven't had a normal year for about 4 years, and yet this machine is powered on through that. So we see the big, big risks are the externalities because many of the other companies in our portfolio. This is actually a very simple business. It's really well managed and the rollout is just a cookie color roll out so we don't have major operation risk part of the business, but Hajir, you're driving this.

No. So I think you're very right. If I just look internally, of course, we have such a fast growing organization. I think our biggest challenge is to keep things as simple as possible and to maintain the strong culture, which we have in our company. I think we also have shown over the last year, we were able to manage that also in very, I would say, extraordinary times. But I would add to that, that's the internal challenge.

The next one is from Richard Chamberlain of Royal Bank of Canada.

I just had one on the margin expectations for the coming year. I wonder if your -- if -- well, I guess, first of all, is there a significant difference in margin between categories such as consumables and other categories? And then are you expecting a mix margin impact from customers looking to sort of manage the budgets either by switching between categories or moving down through tiers or engaging more promotions over the year? What kind of mix in changes are you expecting on margin?

Well, I think the one thing which we overall have seen is that customers in general are buying lower-priced items. I think if you look to our 14 categories, then our margin mix is quite good. So we are very much able to just look to the different margins per category and manage that over time in the mix. So we have the 4 categories, and we also have the choices, as Joost was explaining, to sell an item or not. And we need a decent margin to have an item in shelves. So that could be the case that like we have seen now that people are focusing much more on lower-priced items. We need to make sure that we are the lowest in price, but we still have a decent margin. So I do not expect anything in the mix being driven by this customer behavior.

The next one is from Simon Bowler of Numis.

I'm just focusing in on your kind of store contribution margin by geography, which you kind of hopefully, I think you provide on Slide 50. And there's been kind of a reasonable kind of range of performance, I guess, across those regions, all of it reflects kind of maturity over the last kind of 3 years. But just on a look-forward basis, is there any of those markets which you kind of feel we'll see greater progress come from versus the others? And I guess, in particular, within that, I appreciate the small number of stores that's feeding into that calculation. But is there any reason why somewhere like Poland wouldn't ultimately achieve the same contribution margin that you see across the more mature Western European regions?

To start with your last -- well, it wasn't really a question, it was more of a statement. I tend to agree. Yes, so if you look at the slide, you can see that all the more mature countries are trending towards a similar level of contribution margin. And I think the good news that is in the slide as well as that you also see that Germany really caught up there and all the, let's say, more recent countries. I see no reason why they would not have a similar development and indeed grow to a similar level.

It's been pretty remarkable how Poland and let's say [indiscernible] have moved very close to those margins that the mature countries were producing.

Yes. And you have to remember what I'm showing here is store contribution. So obviously, in the early years, we have a limited number of stores in the country, and then we still have a country of -- what have you, but then this is not included in this number because that is lower in the P&L.

Yes, absolutely. Okay. And then just one other quick comment. I think I heard correctly [indiscernible], I just wanted to kind of follow up on, which was have you talk about kind of the availability of locations in Germany over the last kind of 12 months. And before I was just wondering if you could add some kind of extra color on how you see that landscape developing from here?

Well, I think in terms of Germany, bear in mind that we have almost 500 stores. And as Joost was showing, every single store is profitable. It's also good to see that the country is well coming in line with more mature markets. I think what we have seen is that the awareness in Germany was lower. So therefore, we were very much focused on only the really good locations as we also explained in our presentation. And if we just look back, I think, well, we probably could act a little bit faster. So we have now also based on the overall performance, increased the focus in Germany on more locations and opened up the space, and we are also investing in our real estate team. So we really expect them going to step up in terms of numbers in Germany.

There are no further questions on the conference line. I will now hand over to Silvia Santoro, group Investor Relations Director, to address the written questions submitted via the webcast page.

So first question from Samarth Agrawal at Citi. There are a few here. While as the product mix evolve over the years, share of A-brands versus private labels, and what is the growth -- what growth should we be expecting from higher margin private label products? Shall we start with that?

Shall I take [indiscernible] on that. So in terms of your first question on product mix, A-brands versus private label has both increased over the years. So I think we see that with our volume and our growth and expansion in new countries that our cooperation with A-brands has become stronger. So this share has overall increased. And I think our investment in private label has also increased over the years, where we find it very important to create our own private labels to attract more customers to our stores. Having said that, I think our model is a little bit different than what we see overall traditionally in the supermarkets where private labels are meant to drive margin. As I said, for us, it's very important to drive the margin of every single product. So we don't distinction between A-brands, non-brands and private labels.

Another question from Samarth. I believe that EBITDA margin improvement would largely be backloaded. If so, I would be interested to know thoughts around macro assumptions in our base case, e.g., cost inflation and household income projections embedded in your target? And then more generally, what is the longer-term EBITDA margins that actually can achieve? And then finally, an update on the next liquidity event.

I mean this is not a modeling session. So we're not talking about some of those assumptions. But I do think it's fair to assume that over the coming years, the scale effects will have a bigger pressure on pushing EBITDA margin up. In terms of -- there is no sort of major liquidity event or anything like that plan.

And another question from an investor. Can you help us think through the potential future leverage of lease cost as a percentage of sales? Lease costs are clearly indexed to inflation and are seeing like-for-like ahead of inflation for most part. So is it fair to say that these can continue to fall from the current 3.7% to near best in class of 3%?

So if you look at only lease cost, it's actually already below 3%. So I think that percentage probably includes some of the other housing costs as well. Having said that, indeed, also, if you compare us to other retailers, that component is relatively small. And if we continue at a like-for-like and especially also as long as the average price increase is at the level as it is today, you will see that operating leverage working through. And that includes then also rents.

Next question, can you discuss the sourcing strategy? What are the opportunities around moving sourcing, both proximity and also going more direct? You will likely reinvest this benefit. But what is the potential gross margin benefit you could use to fuel best value to customer as you should?

Well, I don't think that has sort of us -- if we look to our sourcing mix. Again, I think that we are planning to diverse more, as I also explained in my presentation. Having said that, I think in the extra mix, we see the extra impact on the margin from a direct sourcing part. But -- well, I think you need to see every single item in terms of giving the benefits back to the customers and what you allow yourself in terms of also the distance to competition.

I think the first stage is the margin -- gross margin benefits from over sourcing have gone more to the customer than to Action itself.

75%.

Yes.

Given back to customers.

Next question from Elena Jouronova from JPMorgan. What do you believe differentiates to your customer proposition versus competitors like PEPCO, [ Kick and Teddy ]?

Well, I can take a [indiscernible]. So I don't want to talk about other retailers. I can only talk about Action as a company. The broadness of the categories and the continuously changing of the assortment. So we're not a trend setter, but we are a very fast trend follower. And I think that we have invested a lot in our products in terms of not only offering good prices, but also improving the quality and sustainability. And we really see that customers have recognized that. So I would say on one side, the broadness of our assortment in our 14 categories are or, I would say, really unique to what Action is doing, combining that with fast moving, changing assortment, it makes it also very attractive for customers to get to the stores. And I think on the daily essentials, we really have built up a good, very solid assortment over the last years.

And another question on margin. Do you expect the increasing share of FMCG sales to impact gross margins negatively?

I also can take that one because as I explained, we have these 14 categories. So we already see for 7, 8 months, an increase in FMCG. And we worked it out in the margins to compensate that with the other categories and the products which we buy. And again, I think that is -- well, what we try to repeat and bring across, I think the 14 categories and the flexibility which we have in the signing both assortment we are selling is really very fundamental also in our margin management. So coming back to your question, no, I don't expect that.

So another question about A-brands from [ Rob Blackstone ]. Could you talk about the gross margin of A-brands for you, the level of collaboration with those brands around price, in-store placement, signage, et cetera? And your growth plans and percentage basket share of A-brands for a typical customer?

Well, I think coming to you first all, so for us, A-brands is just another supplier, just like we treat other suppliers. So it's very important, our key principle is that we only deal with suppliers if we can offer the lowest price. There's no difference between private label, non-brands or A-brands. And that is also the basic operation which we have with our A-brands. So we only have a deal with an A-brand, if we can offer the lowest price and have a decent market. We do not do anything extra around A-brands promotions or -- so our stores -- our products are selling itself in our stores, that is also what you can see in the movie. And we're not doing anything else with specific suppliers, including A-brands.

What percentage of the basket, 30%, 40%, would you say?

Yes, I would say, yes, around 30%.

And another question, France, as you illustrated, it's been a great growth driver for the business. It's been an entity a large market, which look interesting. In every market Action, seems to do well. It's just a case of flexing the product offering a little to different countries, the world over customers like price and Action are able to provide that. Has there never been an issue with entering the country and growing?

No. So I think that is the unique part of Action. 95% of our assortment is the same and similar across all countries and 5% we differentiate. And that means that if you look to A-brand, it could be that A-brand is a different brand in one country or the other country. It could be if you look to [ Lina ], that you have specific sizes in one country, which is then different in another country. But the core of our assortment is the same across all the stores and all the countries, and it really works. We also don't see huge differences per performance of categories. We see some differences, but not a huge difference. And I think, again, we -- in Spain and Italy, we really have outperformed the business case, but also recently Slovakia, where people in queues really standing in the front of the store waiting for an Action. And I think that is also coming back on our digital approach over the last years, which we have increased also the awareness around the proposition where it helps in new markets that from day-1 the awareness is there. People have heard about it, read about it or seen it in another country.

Question on locations. How easy or difficult is it for you to obtain new locations? Can you say a few words on the pipeline of new locations?

Yes. So we're working up front on our pipeline. And I would say that for 2023, we have a very healthy pipeline, where, of course, you need to start 1.5 year before. The good thing I mentioned is we can perform in all kind of locations. And that means that a lot of landlords are coming to us because they have a good location where they know that Action can perform at. But at the same time, it's also attracting so much customers that is also adding a lot of value for the neighborhood. But I would say for 2023, we have a very healthy pipeline.

Another question is, who are your primary competitors as you continue to grow? Are there peers as PEPCO have similar expansion plans? How will your expansion plans be affected by this?

Well, I think looking to our competitors, we do not have one competitor because we have 14 categories, and we're active in 11 countries. So that means that you need to find competition per category in a certain country, and that is also what we're doing. We're also following now very closely who our competitors in that specific country for that specific category are. And we're focusing very much on the prices, which we're also measuring. And again, for us, it's coming back to our basic principle, we always need to make sure that we are the lowest in the market, and that is what we also -- who we are and what we're doing, that is also what we're measuring. I would not say that we have one competitor. And on locations, I think that we have specific criteria for our locations, which we really want to maintain. And I don't think that in general, we see a lot of competition.

An observation I would make is that Action thrives on competition. And it's very much about the DNA of the business.

Another question is. What are the debt hedging arrangement?

I assume interest rate hedging? Yes. So historically, we have a treasury policy of this where we aim to have a certain level of our debt volume hedged against interest rate changes. So last year, we have increased that level significantly. So right now between 80% and 90% of our total volume of debt has been hedged until 2026 -- up to and including 2026, I should say. And that has an interest associated to it between 1.3% and 1.8%.

What is the cost of [ refurb ] and are they a distraction to sales?

A full refurb. So we distinguish between what we call a good debt, which is a light touch refurbishment and a full refurb. And a full refurb usually requires the same type of CapEx as a new store. So you're looking at the approximately EUR 480,000 that I also mentioned in my presentation.

And to add to that, maybe just in terms of the impact of sales, we really make sure that we're planning it very early in the year so that we really limited the sales impact. And we're continuously also looking to improving the process in terms of speeding up the days that we are close to our customers.

And is it fair to say that you've got a good like-for-like positive impact once you reopen?

So once we reopen, we are to catch up because the customers were not there for a month period, they will pick up afterwards.

And we practice a lot of these what we call relocations or enlargements. And there, the like-for-like, the sales growth increase in sales has been more significant than in a one-on-one.

Is there any seasonality in sales?

Is there any seasonality in sales?

For the last quarter, I guess [indiscernible]

Yes, I would say Yes. January, normally we start always a little bit slower. And you're picking out the season in the summer period that people are coming back from the holiday, and then it's getting a little bit slower. And then people are preparing them for the Christmas period, which is the largest. So there are quite some seasonalities, I would say we're 2 of the biggest garden and outdoor during the summer and then Christmas during the end of year.

Question on valuation, some of your listed peers have suffered devaluation on your chosen valuation metric over recent times. What would be the trigger of [indiscernible] to adjust the valuation.

James?

Sure. So I mean, we have a very tried and tested valuation policy of group and that takes into account both Action's strong performance and a range of valuation metrics, and we're about to go into that process now as we usually do. So it's too early to say exactly. That process will just continue through to the year-end as to our prior periods.

One final [indiscernible] in general. The current event in the global banking market impacting...

I mean, it's pretty clear the events over recent times have pretty slowed up transaction flow. And I would say, fundraising, we are not particularly in the fundraising business that's another item. And the banking or the debt markets look particularly frozen at the moment for most private equity transactions. I think you've got to be a very strong eye catching company to be raising sort of levels of debt, private equity [indiscernible] business situations. That will obviously change at some point in time, but it's very hard today to say when that will be.

There are no further questions.

Okay. Well, I think we'd like to wrap up. Thanks to Joost and Hajir for their time and answering everyone's questions and thanks for dialing in. We really appreciate your involvement. Okay. Bye.